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Item 7. Management’s Discussion and Analysis

2024-10-10 compared with 2023-10-12 · 109 added, 97 removed, 156 unchanged (57% of the section changed)

12 unchanged sentences

RESULTS OF OPERATIONS

Oil-Dri experienced a record breaking year with consolidated net sales and net income reaching an all-time high.

Record revenues were achieved across all areas of our business.

Within the Retail & Wholesale Products Group, pricing actions to improve profitability drove the majority of the sales increase.

Within the Business to Business Products Group, revenue growth was driven by higher prices coupled with increased volumes.

Consolidated income from operations in fiscal year 2023 increased $36.2 million when compared to fiscal year 2022 .

Despite increasing expenses and significant one off events recognized during the current fiscal year, consolidated net income for fiscal year 2023 was $29.6 million, or $4.13 per diluted common share, a 421% increase compared to $5.7 million, or $0.81 per diluted common share in fiscal year 2022.

One-time events included a $2.5 million reserve for anticipated modification costs that we expect to incur to address the capacity issues at our sole landfill located in Ochlocknee, Georgia, as well as a charge of $4.7 million in connection with the termination of the Company's pension plan.

Oil-Dri experienced another record-breaking year with consolidated net sales, gross profit and net income reaching an all-time high.

Record revenues were achieved across both operating segments driven primarily by cat litter sales within the Retail and Wholesale Product Group segment and fluid purification product sales in our Business to Business Product Group segment.

Within the Retail and Wholesale group growth from our existing products due to higher prices was further supplemented with the acquisition of Ultra Pet in the fourth quarter and the sales of silica-gel crystal cat litter.

Within the Business to Business Products Group, revenue growth was driven by higher prices coupled with increased volumes of our fluid purification products.

Despite higher per ton cost of goods sold and SG&A expenses our gross margin and consolidated income from operations increased in fiscal year 2024 when compared to fiscal year 2023.

Consolidated net income for fiscal year 2024 was $39.4 million, or $5.43 per diluted common share, a 33% increase compared to $29.6 million, or $4.13 per diluted common share in fiscal year 2023.

Driven primarily by the increase in operating income as well as fewer non-recurring transactions when compared to fiscal year 2023, offset by higher tax expense.

Fiscal year 2023 was impacted by the $2.5 million reserve for the Georgia landfill modification costs and the $4.7 million charge in connection with the termination of the Company's pension plan.

Refer to Notes 9 and 12 of the Consolidated Financial Statements for additional details.

Our Consolidated Balance Sheets as of July 31, 2023, and our Consolidated Statements of Cash Flows for the fiscal year 2023 show an increase in total cash and cash equivalents from fiscal year-end 2022.

The increase is driven mostly by improved net income and increases in accrued expenses and payables, offset by capital expenditures, increases in accounts receivable and inventories, payment of dividends and stock repurchases.

Our Consolidated Balance Sheets as of July 31, 2024, and our Consolidated Statements of Cash Flows for the fiscal year 2024 show an decrease in total cash and cash equivalents from fiscal year-end 2023.

The decrease is mainly due to cash used in the acquisition of Ultra Pet, net of cash proceeds for financing the acquisition, and capital expenditures, off-set by improved net income.

Refer to the "Liquidity and Capital Resources" section below.

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CONSOLIDATED RESULTS

Consolidated net sales in fiscal year 2023 reached an all-time high of $413.0 million, an 18% increase from net sales of $348.6 million in fiscal year 2022.

Net sales increased for both our Retail and Wholesale and Business to Business Products Groups, primarily due to price increases implemented across both product groups and to a lesser extent due to volume growth in our Business to Business Products Group.

During fiscal year 2023, we increased personnel, expanded production shifts, optimized equipment, and utilized alternative modes of transportation in order to reduce the backlog.

We successfully decreased the backlog by 45% from July 31, 2022, and are back to historical levels.

We will continue to implement strategies to further reduce labor, manufacturing and freight constraints in order to meet the increase in customer demand.

Consolidated net sales in fiscal year 2024 reached an all-time high of $437.6 million, a 6% increase from net sales of $413.0 million in fiscal year 2023.

Net sales increased for both our Retail and Wholesale and Business to Business Products Groups, primarily due to higher price increases implemented across both product groups, stronger sales volumes of fluid purification products, and new business from the Ultra Pet acquisition.

Consolidated gross profit in fiscal year 2024 was $125.1 million, an increase of $21.9 million, or 21%, from gross profit of $103.2 million in the prior fiscal year.

Our gross margin (defined as gross profit as a percentage of net sales) in fiscal year 2024 increased to 29% from 25% in fiscal year 2023.

Our domestic cost of goods sold per ton increased 11%, driven primarily by per ton increases in non-fuel manufacturing and freight, offset by lower per ton packaging costs, while per ton natural gas costs remained flat from prior year.

Non-fuel manufacturing costs per ton increased 15% during fiscal year 2023 compared to fiscal year 2022, mainly due to higher per ton costs of labor, repairs, and replacement of assets as we continue to reinvest in our facilities.

Domestic freight costs per ton increased approximately 4% in fiscal year 2023 compared to fiscal year 2022.

This excludes the impact of a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which further increased our overall freight cost.

Ocean freight costs have also contributed to the increase due to a combination of export fees and the mix of products and geographic locations of our customers throughout the year.

Despite fluctuations throughout the year, natural gas remained relatively flat for fiscal year 2023 compared to fiscal year 2022 due to natural gas prices.

Our domestic cost of goods sold per ton increased 6%, driven

primarily by per ton increases in non-fuel manufacturing and freight, offset by lower per ton natural gas and packaging costs.

Non-fuel manufacturing costs per ton increased 8% during fiscal year 2024 compared to fiscal year 2023, mainly due to higher per ton costs of labor and depreciation.

Domestic freight costs per ton increased approximately 10% in fiscal year 2024 compared to fiscal year 2023, driven primarily by the impact of a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered as well as the higher per ton freight cost of our crystal cat litter products.

Excluding the impact of these two factors, per ton domestic freight costs would have remained flat year over year.

Ocean freight costs have also decreased due to both lower rates and export fees.

However, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers.

Per ton cost of natural gas decreased 28% in fiscal year 2024 compared to fiscal year 2023 due to natural gas prices.

Packaging costs per ton decreased by approximately 1% in fiscal year 2024 compared to fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs.

Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.

Total selling, general and administrative expenses ("SG&A") were 19% higher in fiscal year 2023 compared to fiscal year 2022.

Unallocated corporate expenses increased by $5.9 million, or 23%, driven by higher bonus accrual due to improved results compared to the Company’s performance target under the annual incentive plan, and outside consulting services, offset by a reduction in research and development expenses now allocated to the operating segments.

Total selling, general and administrative expenses ("SG&A") increased 18% in fiscal year 2024 compared to fiscal year 2023.

Unallocated corporate expenses increased by $7.3 million, or 24%, driven by mainly by higher anticipated compensation costs including increased performance-based incentives and acquisition and integration related expenses incurred in the current year.

Additional expenses related to the integration of Ultra Pet are expected to be incurred in the first quarter of fiscal year 2025.

The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments.

Total other expenses, net were $6.4 million for fiscal year 2023 compared to other income, net of $0.9 million in fiscal year 2022.

This was mostly due to the $4.7 million loss on pension termination and the $2.5 million reserve recorded for anticipated landfill capacity modification costs, offset by other miscellaneous and interest income.

Total other expenses, net were $2.0 million for fiscal year 2024, down $4.4 million compared to $6.4 million in fiscal year 2023.

This was mostly driven by higher non-recurring transactions in fiscal year 2023 due to the $4.7 million loss on pension termination and the $2.5 million reserve recorded for anticipated landfill capacity modification costs, offset by higher foreign exchange losses in fiscal year 2024.

Tax expense for fiscal year 2024 was $10.2 million with an effective tax rate of 21% compared to $5.2 million with an effective tax rate of 15% in fiscal year 2023.

The increase in tax expense was driven by higher taxable income.

The increase in tax expense was driven by higher book income.

See Note 6 of the Notes to the Consolidated Financial Statements for additional information about our income taxes.

BUSINESS TO BUSINESS PRODUCTS GROUP

Net sales of the Business to Business Products Group for fiscal year 2023 were $142.4 million, an increase of $29.0 million, or 26%, from net sales of $113.4 million in fiscal year 2022.

Net sales increased in all product categories - fluids purification products;

agricultural and horticultural products;

and animal health products.

This growth was primarily driven by price increases and to a lesser extent higher demand.

Net sales of the Business to Business Products Group for fiscal year 2024 were $150.5 million, an increase of $8.1 million, or 6%, from net sales of $142.4 million in fiscal year 2023, driven by sales of our fluid purification products.

Net sales of fluids purification products increased approximately $14.8 million or 19% in fiscal year 2024 compared with the prior year.

The increase in net sales was driven by a combination of price increases across all regions and continued demand for our products used in the filtration of edible oil, renewable diesel, and jet fuel.

Net sales increased in all regions with most of the increase driven by sales in North America, the region including Europe, Middle East, and Africa ("EMEA") and Latin America when compared to fiscal year 2022.

Net sales of our agricultural and horticultural chemical carrier products increased approximately $9.9 million, or 32%, for fiscal year 2023 compared to fiscal year 2022.

This is a result of strategic pricing actions implemented throughout the year to offset growing costs and continued strong demand from several large customers.

Net sales of our animal health and nutrition products increased $3.6 million, or 17%, during fiscal year 2023 compared to the fiscal year 2022.

We saw growth in net sales in all regions except our subsidiaries in China and Indonesia, with the greatest impact coming from North America and Latin America regions.

North American sales rose due to a new product line, increased distribution to new and existing customers and a strategic focus on that market.

Latin American sales were boosted by the European Union's ("EU") regulations requiring antibiotic-free foreign protein imports, as a large percentage of meat is exported from Latin America to the EU.

Asia (excluding China) year-to-date net sales increased due to price.

See “Foreign Operations” below for a discussion of net sales for our foreign operations that sell our animal health and nutrition products.

The increase was primarily driven by new customers in the renewable diesel business in North America, as well as continued demand for our products used in the filtration of edible oil and jet-fuel, and to a lesser extent higher prices.

Net sales increased in North America, our subsidiary in the UK, the Asia and the Europe, Middle East and Africa ("EMEA") regions, partially offset by a decrease in Latin America.

Net sales of our animal health and nutrition products remained flat in fiscal year 2024 compared to the fiscal year 2023.

Higher net sales in Latin America and North America were offset by softer sales in Asia and by our subsidiary in Mexico.

Latin America sales grew due to stronger demand while North American sales rose due to a combination of higher prices and favorable mix.

Net sales of our agricultural and horticultural chemical carrier products decreased approximately $6.7 million, or 17%, for fiscal year 2024 compared to fiscal year 2023 as a result of softer volumes offset partially by higher prices.

This decline in volume was primarily due to reduced demand from a key customer that was still working through inventory from last year.

See “Foreign Operations” below for a discussion of net sales for our foreign operations that sell our fluid purification and animal health and nutrition products.

SG&A expenses for the Business to Business Products Group increased approximately $0.3 million, or 2%, for fiscal year 2024 compared to the prior fiscal year.

The majority of the increase relates to microbiology lab expenses that are now allocated to the animal health business (a change from when existing costs were previously included in unallocated corporate expenses) and an increase in compensation related expenses.

The majority of the increase relates to higher compensation related expenses and research and development costs, offset by a reduction in technical service support costs from the research and development center and Microbiology Lab.

The Business to Business Products Group’s operating income for fiscal year 2024 was $45.6 million, an increase of $7.9 million, or 21%, from operating income of $37.7 million for fiscal year 2023.

The increase in operating income was mostly driven by higher net sales across all business within this segment as discussed above.

The increase in operating income was mostly driven by higher net sales of our fluid purification products as discussed above.

RETAIL AND WHOLESALE PRODUCTS GROUP

Net sales of the Retail and Wholesale Products Group for fiscal year 2023 were $270.6 million, an increase of $35.4 million, or 15%, from net sales of $235.2 million in fiscal year 2022 driven by increases of our cat litter and industrial & sports products.

Total cat litter net sales increased $30.1 million, or 15%, compared to the prior fiscal year driven mostly by increased pricing.

Domestic cat litter net sales were $196.4 million, an increase of $27.1 million from fiscal year 2022 due primarily to increased prices.

This was supplemented by increases in organic volume growth of our branded and private label lightweight scoop and private label coarse litter which was offset by a decrease in both volume and net sales of private label heavy weight litter.

Net sales of co-packaged products increased by approximately $0.9 million compared to fiscal year 2022.

This increase was driven by pricing offset by a reduction in volume as our customer discontinued export sales to one of their foreign markets and softer domestic sales volumes.

Net sales of cat litter by our subsidiary in Canada increased period over period, as discussed in "Foreign Operations" below.

Net sales of our global industrial and sports products increased by approximately $5.4 million, or 14%, compared to fiscal year 2022, primarily driven by price increases implemented to rebuild margins.

SG&A expenses for the Retail and Wholesale Products Group were $3.4 million, or 26%, higher during fiscal year 2023 compared to fiscal year 2022 due primarily to higher advertising costs which ramped up in the fourth quarter.

We expect advertising spend in fiscal year 2024 to be higher than fiscal year 2023 and spread more evenly throughout the year than fiscal year 2023.

Net sales of the Retail and Wholesale Products Group for fiscal year 2024 were $287.1 million, an increase of $16.5 million, or 6%, from net sales of $270.6 million in fiscal year 2023 driven by increases of both our cat litter and industrial and sport products.

Total cat litter net sales increased $15.5 million, or 7%, compared to the prior fiscal year driven mostly by higher prices.

Domestic cat litter net sales were $212.8 million, an increase of $16.4 million from fiscal year 2023 due primarily to higher prices and the incremental sales of crystal cat litter in the fourth quarter.

This was supplemented by increases in organic volume growth of both our branded lightweight and branded coarse litters offset by softer volumes of our private label clay-based offerings.

Net sales of co-packaged products decreased by approximately $0.7 million compared to fiscal year 2023, mainly due to softer volumes which were partially driven by the cyberattack on one of our customers in the first quarter of fiscal year 2024.

Net sales of our global industrial and sports products increased by approximately $0.9 million, or 2%, compared to fiscal year 2023, primarily driven by higher prices implemented to continue to rebuild margins.

Net sales by our subsidiary in Canada increased period over period, as discussed in "Foreign Operations" below.

SG&A expenses for the Retail and Wholesale Products Group were $3.5 million, or 21%, higher during fiscal year 2024 compared to fiscal year 2023 due primarily to higher advertising costs, compensation, and the amortization of the customer list acquired through the purchase of Ultra Pet.

Advertising spend is expected to be lower in fiscal year 2025 compared to fiscal year 2024.

The Retail and Wholesale Products Group’s segment operating income for fiscal year 2024 was $43.8 million, an increase of $10.0 million or 30%, from operating income of $33.8 million in fiscal year 2023.

This was driven primarily by the increase in gross margins due to price increases partially offset by higher cost of goods sold, and the goodwill impairment recognized in the third quarter of fiscal year 2022.

This was driven primarily by the increase in gross margins due to higher price on existing products and incremental sales of crystal cat litter, partially offset by higher cost of goods sold.

FOREIGN SUBSIDIARIES

Foreign operations include our subsidiary in Canada, which is included in the Retail and Wholesale Products Group, and our subsidiaries in the United Kingdom, China, Mexico and Indonesia, which are included in the Business to Business Products Group.

Net sales by our foreign subsidiaries during fiscal year 2023 were $22.1 million, an increase of $2.2 million, or 11%, from net sales of $19.9 million during fiscal year 2022.

All of our foreign operations, with the exception of our subsidiaries in China and Indonesia, experienced an increase in net sales during fiscal year 2023 compared to fiscal year 2022.

Total net sales of our subsidiary in Canada during fiscal year 2023 increased by $2.1 million, or 18%, compared to fiscal year 2022 driven by increased private label cat litter net sales.

The increase in cat litter sales was driven by a combination of price increases instituted in response to rising costs and volume growth.

Industrial sales in Canada remained flat year over year.

Foreign operations include our subsidiary in Canada and Netherlands, which is included in the Retail and Wholesale Products Group, and our subsidiaries in the United Kingdom, China, Mexico and Indonesia, which are included in the Business to Business Products Group.

Net sales by our foreign subsidiaries during fiscal year 2024 were $21.0 million, a decrease of $1.1 million, or 5%, from net sales of $22.1 million during fiscal year 2023.

The decrease in net sales was driven mainly by our subsidiaries in China, Mexico, and Indonesia, offset by increases in UK and Canada.

Net sales of our subsidiary in China decreased $1.0 million, or 38%, during fiscal year 2024 compared to fiscal year 2023 primarily due to the sale of all existing inventory to the new master distributor, which occurred in the first quarter of fiscal year 2024.

Beginning January 2023, sales to China went directly through the Company and not through our subsidiary in China.

Net sales of our subsidiary in Mexico decreased $0.8 million, or 32% during fiscal year 2024 compared to fiscal year 2023.

Net sales of our subsidiary in the United Kingdom in fiscal year 2024 increased by $0.7 million, or 26%, compared to net sales in fiscal year 2023.

The increase is driven primarily by price increases which offset the impact of softer sale volumes.

Net sales of our subsidiary in Mexico increased during fiscal year 2023 compared to fiscal year 2022 by $0.5 million, or 24%, due to growing demand for our animal health products.

Net sales of our subsidiary in China decreased $0.6 million, or 19%, during fiscal year 2023 compared to fiscal year 2022 primarily due to the process of transitioning the sale of our products to a master distributor.

Net sales by our foreign subsidiaries represented 5% of our consolidated net sales in fiscal years 2023 and 6% in fiscal year 2022.

For fiscal year 2023, our foreign subsidiaries reported a net income of $1.1 million, compared to a net loss of $0.8 million in fiscal year 2022.

The net income in fiscal year 2023 was driven by price and volume increases in Canada, UK, and Mexico and the reduction of cost of goods sold in China and Indonesia.

The increase is driven by an increase in both volume and prices.

Total net sales of our subsidiary in Canada during fiscal year 2024 increased by $0.2 million, or 1%, compared to fiscal year 2023, driven by higher prices in our industrial product sales offset by softer cat litter sales.

Net sales by our foreign subsidiaries represented 5% of our consolidated net sales in fiscal years 2024 and 2023.

For fiscal year 2024, our foreign subsidiaries reported a pre-tax net income of $0.7 million, compared to $1.0 million in fiscal year 2023.

The decrease in 2024 was mainly driven by lower sales in China as we moved to selling to a master distributor directly through the Company and not through our subsidiary, offset by higher income in Canada and the UK as discussed above.

Identifiable assets of our foreign subsidiaries as of July 31, 2024, were $8.7 million compared to $14.6 million as of July 31, 2023.

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and, from time to time, business acquisitions.

During fiscal year 2023, we principally funded these short and long-term capital requirements using cash from current operations.

During fiscal year 2024, we principally funded these short and long-term capital requirements using cash from current operations and additional debt to fund a portion of the acquisition of Ultra Pet.

Cash and cash equivalents totaled $23.5 million and $31.8 million as of July 31, 2024 and 2023, respectively.

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Net cash used in investing activities (76,116) (24,567)

Net cash (used in) provided by financing activities (9,518) 4,703

Net cash provided by (used in) financing activities

8,326 (9,518)

Effect of exchange rate changes on cash and cash equivalents 204 (223)

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Net cash provided by operating activities

In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flows for fiscal years 2023 and 2022 were as follows:

Accounts receivables, less allowance for doubtful accounts and cash discounts, were $7.9 million higher at fiscal year-end 2023 compared to fiscal year-end 2022.

The increase is primarily due to the increase in net sales compared to the prior period.

In addition, variation in accounts receivable balances reflects differences in the level and timing of collections as well as the payment terms provided to various customers.

Inventories were $2.2 million higher at fiscal year-end 2023 compared to fiscal year-end 2022.

The increase is primarily due to rising costs and building inventory levels to meet demand.

During fiscal year 2023 we have managed inventory balances primarily focusing on building finished goods inventory offset by decreases in packaging and other through strategic supply chain management.

In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flow for fiscal year 2024 were as follows:

Excluding the impact of accounts receivable acquired through the purchase of Ultra Pet, accounts receivables, less allowance for credit losses and cash discounts, were $1.5 million lower at fiscal year-end 2024 compared to fiscal year-end 2023.

The variation in accounts receivable balances reflects differences in the level and timing of collections as well as the payment terms provided to various customers.

Excluding the impact of inventory acquired through the purchase of Ultra Pet, inventories were $4.7 million higher at fiscal year-end 2024 compared to fiscal year-end 2023.

The increase is primarily due to rising costs and building inventory levels to meet expected future demand.

During fiscal year 2024 we have continued to manage inventory balances primarily focusing on building finished goods inventory offset by decreases in packaging and other through strategic supply chain management.

See Note 1 of the Notes to the Consolidated Financial Statements for further information regarding our inventory.

Prepaid expenses were $1.1 million lower at fiscal year-end 2023 compared to fiscal year-end 2022 driven primarily by a reduction in prepaid tax expense.

Accounts payable were $3.2 million higher at fiscal year-end 2023 compared to fiscal year-end 2022.

The increase is due to higher trade payables mainly due to increases in costs of goods and freight as well as fluctuations in timing.

Excluding the impact of prepaid assets acquired through the purchase of Ultra Pet, prepaid expenses were $2.4 million higher at fiscal year-end 2024 compared to fiscal year-end 2023 driven primarily by an increase in prepaid tax and insurance expenses.

Excluding the impact of accounts payable acquired through the purchase of Ultra Pet, accounts payable were $2.8 million lower at fiscal year-end 2024 compared to fiscal year-end 2023.

The decrease is due to higher trade payables mainly due to timing.

Changes in trade accounts payable in all periods are subject to normal fluctuations in the timing of payments, the cost of goods and services we purchased, production volume levels and vendor payment terms.

Accrued expenses were $6.5 million higher at fiscal year-end 2023 compared to fiscal year-end 2022.

The increase in accrued expenses during the fiscal year 2023 was driven by the $2.5 million reserve added for the Georgia landfill modification, higher compensation-related expenses, higher advertising expense accruals, and income tax payable.

Pension and other postretirement liabilities, net of the adjustment recorded in stockholders' equity, were $1.1 million lower at fiscal year-end 2023 compared to fiscal year-end 2022 due primarily to pension income and actuarial revaluation of the pension and postretirement liabilities prior to the termination of the pension.

See Note 8 of the Notes to the Consolidated Financial Statements for more information regarding our postretirement benefit plans.

Excluding the impact of accrued expenses acquired through the purchase of Ultra Pet, accrued expenses were $2.4 million higher at fiscal year-end 2024 compared to fiscal year-end 2023.

The increase in accrued expenses during the fiscal year 2024 was driven by higher compensation-related expenses, higher advertising expense accruals, and accrued payables.

Net cash used in investing activities

Cash used in investing activities was $76.1 million in fiscal year 2024.

Cash used in investing activities primarily related to capital expenditures to expand our plant equipment and improve our facilities in order to support increased demand for our products.

Net cash (used in) provided by financing activities

Cash used in financing activities was $9.5 million in fiscal year 2023, which was predominantly used for dividend payments, stock repurchases and debt repayments.

Total cash and investment balances held by our foreign subsidiaries as of July 31, 2023 and 2022 were $5.2 million and $3.3 million, respectively.

Cash used in investing activities primarily related to the acquisition of Ultra Pet and capital expenditures to expand our plant equipment and improve our facilities in order to support increased demand for our products.

Net cash provided by (used in) financing activities

Cash provided by financing activities was $8.3 million in fiscal year 2024, which was driven by a $10 million advance under the Credit Agreement, and the issuance of $10 million in aggregate principal amount Series D Senior Notes.

This increase in cash was offset by payments for dividends, stock repurchases and debt repayments.

See Note 4 of the Notes to the Consolidated Financial Statements for further information regarding debt.

Total cash and investment balances held by our foreign subsidiaries as of July 31, 2024 and 2023 were $4.5 and $5.2 million, respectively.

See further discussion in the “Foreign Operations” section above.

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GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported amounts of revenues and expenses during the reporting period.

Significant estimates include income taxes, promotional programs, pension accounting and allowance for doubtful accounts.

Significant estimates include income taxes, promotional programs, pension accounting and allowance for credit losses.

Actual results could differ from these estimates.

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In determining whether a valuation allowance is warranted, we take into account such factors as prior earnings history, expected future earnings and other factors that could affect the realization of deferred tax assets.

We recorded valuation allowances of $1.7 million and $1.8 million for the amount of the deferred tax benefit related to our foreign net operating loss carryforwards as of July 31, 2023 and 2022, respectively, because we believe it is unlikely we will realize the benefit of these tax attributes in the future.

We recorded valuation allowances of $2.5 million and $1.7 million for the amount of the deferred tax benefit related to our foreign net operating loss carryforwards and certain state net operating loss carryforwards as of July 31, 2024 and 2023, respectively, because we believe it is unlikely we will realize the benefit of these tax attributes in the future.

In addition to valuation allowances, we may provide for uncertain tax positions when such tax positions do not meet certain recognition thresholds or measurement standards.

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We recognize trade receivables when control of finished products are transferred to our customers.

We record an allowance for credit losses based on our expectations and a periodic review of our accounts receivable, including a review of the overall aging of accounts, consideration of customer credit risk and analysis of facts and circumstances about specific accounts.

circumstances about specific accounts.

A customer account is determined to be uncollectible when it is probable that a loss will be incurred after we have completed our internal collection procedures, including termination of shipments, direct customer contact and formal demand of payment.

We believe our allowance for doubtful accounts is reasonable;

We believe our allowance for credit losses is reasonable;

however, the unanticipated default by a customer with a material trade receivable could occur.

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The review also surveys all of our operating facilities and sales divisions to give consideration to historic and new market trends.

The inventory reserve value was $0.8 million as of both July 31, 2023 and 2022.

The inventory reserve value was $3.8 million as of July 31, 2024 and $3.6 million as of July 31, 2023.

During the normal course of our mining process we remove overburden and perform on-going reclamation activities.

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On an annual basis we evaluate our potential reclamation liability in accordance with ASC 410, Asset Retirement and Environmental Obligations .

As of July 31, 2023 and 2022, we have recorded an estimated net reclamation asset of $2.2 million and $1.8 million, respectively, and a corresponding estimated reclamation liability of $4.5 million as of July 31, 2023 and $3.8 million as of July 31, 2022.

We have recorded an estimated net reclamation asset of $2.2 million, as of both July 31, 2024 and 2023, and a corresponding estimated reclamation liability of $4.8 million as of July 31, 2024 and $4.5 million as of July 31, 2023.

These values represent the discounted present value of the estimated future mining reclamation and landfill closure and monitoring costs at the production plants.

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No such triggering events or impairment of goodwill was identified in fiscal year 2024 however this could change in the future, as outlined under Item 1A "Risk Factors."

Valuation of acquired goodwill and intangible assets.

We account for business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations.

The identifiable assets acquired and liabilities assumed are recorded at their fair values on the date of acquisition.

The difference in the fair value of consideration transferred over the fair values of the assets and liabilities is recorded as goodwill.

We make significant estimates and assumptions when determining the fair values of assets and liabilities obtained through a business combination, especially regarding intangible assets.

We utilize various approaches to establish the fair value of intangible assets acquired.

The Company believes its estimates of the fair value of intangible assets to be reasonable.

However, actual financial results may differ from the estimates because of the inherent uncertainty involved.

N EW A CCOUNTING P RONOUNCEMENTS

Recently Issued Accounting Standards

In March 2020, the FASB issued guidance under ASC 848, Reference Rate Reform.

This guidance provides optional expedients and exceptions to account for debt, leases, contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met.

The guidance is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

On August 30, 2022, we amended our debt agreements to replace the LIBOR-based reference rate with an adjusted term Secured Overnight Financing Rate (SOFR), ASC 848 will allow us to account for the modification as a continuation of the existing contract without additional analysis.

A summary of all recently adopted and issued accounting standards is contained in Note 1 of Notes to the Consolidated Financial Statements.

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures." These amendments primarily require enhanced disclosures and disaggregation of income tax information by jurisdiction in the annual income tax reconciliation and quantitative disclosures regarding income taxes paid.

These amendments are to be applied prospectively, with the option to apply the standard retrospectively, for annual periods beginning after December 15, 2024.

Early adoption is permitted.

We are currently evaluating the impact that the adoption of this guidance will have on our disclosures.

In November 2023, the FASB issued ASU No.

2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures." These amendments primarily require enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss.

In addition, ASU No.

2023-07 also requires all annual disclosures currently required by Topic 280 to be included in interim periods.

These amendments are to be applied retrospectively for all periods presented in the financial statements and are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact that the adoption of this guidance will have on our disclosures.

Recently Adopted Accounting Standards

There have been no new accounting pronouncements adopted in the period .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis